CAMEL Code Dispute Pits Feds vs. States

CAMELs aren’t usually a source of controversy in a place known for basketball and tobacco. At issue is the NCUA’s fight with state regulators over the release of the CAMEL rating of State Employees Credit Union.

The NCUA said it is protecting the safety and soundness of the credit union system while the North Carolina credit union regulator and the nation’s second largest credit union say it is about transparency.

All sides are holding fast to their position and North Carolina’s 51 other state-chartered credit unions (all of which are federally insured) will have to pay for an additional examination because the NCUA will no longer perform joint exams with the state regulator.

NCUA Region III Director Herbert S. Yolles wrote all North Carolina state-chartered federally insured credit unions that the disclosure of the CAMEL rating was “an unacceptable release of exempt records of the NCUA rules and regulations.”

Yolles added that federal law and his agency’s regulations ban credit unions from disclosing information from examination reports, operating reports or condition reports “prepared by, on behalf or for the use of one of the federal agencies responsible for the regulation or supervision of financial institutions.” The release of CAMEL ratings “could cause great harm to the NCUSIF, all insured credit unions and their insured and uninsured depositors,” he said.

In October, after receiving permission from its state regulator, State Employees CU announced that it had received a CAMEL 2 rating in its latest state examination, which was not conducted jointly with the NCUA. The Raleigh, N.C.-based credit union has assets of $23.4 billion

North Carolina Credit Union Division Administrator Jerrie K. Jay told Credit Union Times that her agency had made its decision to let the credit union release its CAMEL rating after consulting with the state attorney general.

“Under state law, at my discretion I have the right to give permission to release a CAMEL rating. I worked with the attorney general’s office, and we didn’t see how what we did violated federal laws,” she said.

North Carolina Credit Union League President/CEO John Radebaugh said he is not giving up hope that there will be a resolution because the current situation will cause credit unions to spend more time and money on examinations and is a threat to the dual chartering system.

NASCUS President/CEO Mary Martha Fortney said her organization “is very concerned about any conceived or perceived threat to dual chartering in North Carolina,” and it has been working to try to resolve the dispute. She declined to provide details on the nature of their involvement.

Fortney added that the “prevailing sentiment in most states is that the CAMEL rating should remain confidential. However, it is not uncommon for law to vest the regulator with the discretion to release information deemed in the public interest.”

State Employees President/CEO Jim Blaine said although his credit union has had separate state and federal examinations during the past several years because of its size, it is “unfair for the NCUA to punish other credit unions in the state and make them incur added expense. The NCUA is penalizing them because we did something that was legal under our state charter.”

Blaine added that they sought permission to release their CAMEL rating “because we want to provide full disclosure to our members and other consumers.”

His view is shared by two prominent former NCUA officials.

Former NCUA Board Member Geoff Bacino said that “because there are already several private companies that do ratings of credit unions, and there is extensive information available in Call Reports, people can already get a good idea of a credit union’s health. Knowing the CAMEL rating would just add another piece of data.”

Chip Filson, who once ran the NCUA’s Examination Office, recently wrote that if the agency allowed its own and state CAMEL ratings to be released, regulatory decisions could be better monitored by credit unions and credit union watchers.

“This is an example of NCUA’s efforts to monopolize the control of information so others cannot challenge its judgment and assertions in the light of day and with open discourse. NCUA wants to keep its power unchecked, unregulated and unchallenged,” he wrote.